Large-scale infrastructure projects in the pipeline as Kuwait targets becoming regional transportation centre

 

Kuwait is undergoing a major revamp of its transport and logistics networks, which are set to transform local and international connectivity in the lead-up to 2020. New roads, railways, airports and ports are either already being built or are in the pipeline, as part of the ambitious aim to re-establish Kuwait’s historical role as a regional centre for the sector. The country is keen to attract foreign investment and participation in this revitalisation, with the government working hard to encourage public-private partnerships (PPPs) and reduce bureaucratic obstacles to investment.

However, challenges remain as the rollout of new infrastructure takes place within uncertain global economic conditions, in a region that has its own political risks. Yet with new drive in its development plans, Kuwait is well positioned to push through these headwinds and continue to take greater advantage of its strategic location within international and regional transport and logistics networks.

Sector Activity

Transport services have made a significant contribution to Kuwait’s economy in recent years, with their share of annual GDP remaining fairly consistent and sector revenue rising steadily.

According to the Central Statistical Bureau (CSB), in 2018 transport contributed 5.7% of non-oil GDP at current prices, compared to 5.5% in 2017. Meanwhile, its share of total GDP in 2018 was 3%, compared to 3.2% the previous year. Overall revenue for the sector rose from KD1.15bn ($3.8bn) in 2017 to KD1.26bn ($4.2bn) in 2018. The most recent CSB figures for 2019 estimate that transport’s share of non-oil GDP increased slightly year-on-year, from 5.3% in the first quarter of 2018 to 5.5% in the same period of 2019.

Structure & Oversight

Recent years have seen some reorganisation in the administration of the transport sector, with the creation of the Public Authority for Roads and Transportation (PART) in 2014. PART is responsible for issuing driving licences, car registrations and licence plates, as well as overseeing vehicle inspections and planning the construction of new roads. The organisation took on some of the transport roles previously held by other bodies such as the Ministry of Public Works (MPW), the Ministry of Interior (MoI) and the Traffic General Department, a subdivision of the MoI. The MPW is responsible for developing infrastructure in a range of sectors including transport. Under its remit is the Directorate General of Civil Aviation (DGCA), which is responsible for overseeing the aviation sector, the development of new air travel facilities, and the management and operation of Kuwait International Airport (KIA).

Kuwait Public Transport Company (KPTC) is responsible for operating the bus network throughout the country, as well as connecting into neighbouring Saudi Arabia and Iraq. In the private sector, City Bus owns the GoCity taxi- and van-hailing apps. Taxis are increasingly being supplemented with ride-hailing services such as UAE-headquartered Careem, which operates throughout the MENA region.

Meanwhile, Kuwait Ports Authority (KPA) manages the regulation, supervision and development of maritime transport. It oversees three ports: Shuaiba, 45 km south of Kuwait City; Shuwaikh, in the heart of the capital; and Doha Port. KPA is governed by a board of directors, and also has a corporate presence in the form of the Kuwait Ports Corporation.

New Kuwait

The expansion of transport infrastructure is crucial to Kuwait’s short-, medium- and long-term development plans. These fall within the framework of the Kuwait National Development Plan, known as New Kuwait 2035. The strategy was launched in January 2017 and aims to reduce the country’s dependence on oil revenue, which in 2017 made up 50% of GDP and 93.6% of fiscal revenue. New Kuwait 2035 also aims to reduce reliance on public sector spending. Around 16% of the 2018/19 budget was allocated to spending on subsidies and 54% to salaries of public sector employees. Therefore, the strategy seeks to create a diversified economy led by the private sector, with one of the seven pillars of New Kuwait 2035 focusing on developing infrastructure to re-establish the country as a regional and global commercial centre.

Projects with particular relevance to transport come under this pillar, such as the Air Transport Development Programme, which seeks to increase KIA’s capacity and service offering through the new Terminal 2 building and eastern runway; the Land Transport Development Programme, which includes warehousing, rail and road schemes, the Sheikh Jaber Al Ahmad Al Sabah Causeway, which opened in May 2019; and the Maritime System Development Programme, which is overseeing the construction of the new Mubarak Al Kabeer Port on Boubyan Island, as well as the ongoing maintenance of the country’s three main ports.

In the shorter term, the New Kuwait 2035 programme is being implemented through a series of five-year plans. The current plan was launched in 2015 and is due to end in 2020. To ensure that there is a continuous flow of policies and programmes, the Supreme Council for Planning and Development (SCPD) is already looking to the 2020-25 plan. According to reports from local media, the council expects it to be finalised by the end of October 2019.

Furthermore, in February 2017 the General Secretariat of the SCPD, in collaboration with the UN Development Programme (UNDP), began a project to establish the Kuwait Public Policy Centre (KPPC). The KPPC aims to address gaps in policy-making and support the formation of development plans to achieve the aims of New Kuwait 2035. According to the UNDP, the project’s estimated completion date is the end of December 2019, meaning that the 2020-25 development plan will benefit from its guidance.

Logistics Activity

The improvements to infrastructure under New Kuwait 2035 are set to boost logistics activity in particular. In November 2018 India-h e a dquartered market research firm Ken Research estimated that the Kuwaiti logistics and warehousing segment would be worth $3.4bn by 2022, driven primarily by e-commerce and express delivery services. There were 55 courier services in Kuwait as of May 2019, with international companies such as DHL, UPS, FedEx, Frontline Express and Aramex operating alongside local players like KGL Logistics, Crown Logistics, Agility and Move One Logistics.

Roads & Bridges

Kuwait’s road network extends around 5749 km, of which roughly 4887 km is paved. Kuwait City sits at the centre of an extensive network of roadways. There are three major motorways connecting Kuwait City with neighbouring countries: Highway 40, which runs south along the coast until it joins Saudi Arabia’s Highway 5; Highway 70, which heads west to Saudi Arabia via Doha and Yahra; and Highway 80, which runs north towards Iraq.

The road system in Kuwait City itself exists within a ring-road framework, which divides the coastal city into districts, which are then further subdivided into numbered neighbourhoods. The road network was significantly improved following the opening of the 37.5-km Sheikh Jaber Al Ahmad Al Sabah Causeway in May 2019, which crosses Kuwait Bay from Kuwait City to the northern district of Subiyah. The causeway also has a 13-km spur at its southern end, running across from Kuwait City to Doha. The result is a dual-carriageway bridge, approximately 30.6 metres wide, with each carriageway containing three main and one emergency lane, reducing travel time between Kuwait City and Subiyah from 90 minutes to 30.

Meanwhile, in September 2018 the MPW began its two-year upgrade of the Northern Regional Road. The Kuwait Technical Consulting Bureau and UK-headquartered Halcrow International are the main contractors for the $241m project, which will extend the existing road beyond the Abdaly Expressway to eventually create an intersection with the Subiyah Expressway at the northern end of the Sheikh Jaber Al Ahmad Al Sabah Causeway. According to MEED Projects, a project-tracking database for the MENA region, the extension will be crucial to fostering increased inter-regional connectivity in the GCC.

Also in the north, a $45m contract was awarded to Kuwait Systems and United Engineering and Technical Consultants in October 2018 to establish new access roads to the Ratqa oilfields on the border with Iraq. The main stakeholder is Kuwait Oil Company. In addition, as relations with Iraq begin to ease, regional media announced in May 2019 that Kuwait would be funding the reconstruction of the main border crossing with Iraq at Safwan. Iraq’s Border Crossing Authority issued a statement that a memorandum of understanding had been signed between the two countries at a meeting of the Iraqi-Kuwaiti Joint Committee in the same month.

Kuwait City itself also has a series of urban road construction projects under way. In February 2020 the MPW plans to open the $350m upgrade to Cairo Street, which is being undertaken by US-headquartered Parsons Brinckerhoff, in partnership with Kuwaiti architects Gulf Consult. In October 2020 a $100m upgrade to the city’s second ring road is expected to be completed by SSH Kuwait and Turkey’s PROYAPI Engineering & Consultancy. Additionally, UK-based Mott MacDonald received the $50m maintenance contract for the Fourth Ring Road, which has an estimated finalisation date of 2022.

The MPW is also working with Khatib & Alami Consolidated Engineering to upgrade the main southern road, Highway 30. The $3bn project is expected to run from August 2019 to February 2022. During this time, 22 interchanges and 16 pedestrian bridges will be upgraded. Kuwait is also in the process of constructing a number of new residential cities around the capital to meet growing demand for public housing. These satellite cities will require new road infrastructure, with Turkey’s Limak Construction, Italian Salini Impregilo, Kuwaiti Dar Al Dowailah Engineering Consultants & Construction Managers and US-based Louis Berger working on a $315m access road project for South Al Mutlaa City, a project due to be completed in 2020.

Rail Connections

Although Kuwait does not yet have a rail system, an important part of the northern development project is the construction of a 153-km rail link between Kuwait City and Mubarak Al Kabeer Port. This will also connect to two other planned rail developments: the Kuwait Metro and the 2177-km GCC railway, a network designed to connect the six countries in the region. In 2018 PART announced that the first phase of the Kuwait National Rail Road (KNRR) project would include a PPP organised by the Kuwait Authority for Partnership Projects, which plans to establish a public joint-stock company to tender individual rail construction projects.

The first phase of the KNRR will be a 111-km line south to Al Nuwaiseeb and the border with Saudi Arabia, where it will connect with the Saudi stretch of the GCC railway project. While this multinational project has been in the pipeline since 2009, progress appears to have stalled as the fall in oil prices continues to impact growth in the region. However, in June 2019 international media reported that the project was still on track to be completed 2021.

The 171-km Kuwait Metro project has also suffered delays due to recent economic downturns, with the original plans revised in 2017 to reduce maintenance costs. According to local media reports from November 2018, PART was liaising with international advisers on the design of the metro system. Despite these setbacks, rail development remains a key part of the Land Transport System Development Programme, a branch of New Kuwait 2035, and KD135m ($444.6m) was spent under this programme in 2018/19.

Air Transport

KIA, the country’s sole international airport, is located 15.5 km south of Kuwait city. The central structure of the airport dates back to the 1970s, but it was renovated and expanded in 1999-2000, and new terminals were added in 2008 and 2018.

As of June 2019 KIA had four operating terminals, with Terminal 3 designed to be used exclusively by private aircraft. Terminal 5 will be operated by the low-cost carrier Jazeera Airways.

The government-owned national carrier, Kuwait Airways (KA), was founded in 1954. As of May 2019 the airline had a fleet of 28 aircraft: 13 Airbus A320s, five Airbus A330s and 10 Boeing 777s. In the same month, KA ran its last services using the Boeing 747, with plans for a major update of the fleet in the pipeline. The retired aircraft will be replaced with Boeing 777s, in addition to KA’s upcoming order of 28 new Airbus models: 15 A320s, eight A330s and five A350s. This will almost double KA’s total fleet size, bringing it to 53 planes. International media reported in May 2019 that the first of the new aircraft are expected to be delivered by the end of 2019.

Meanwhile, Jazeera Airways was founded in 2005 and has a fleet of nine aircraft, all Airbus A320s. Its new terminal at KIA had a successful first year of operation. The airline transported 2m passengers between May 2018 and May 2019, an increase of 46.4% year-on-year. In May 2019 Jazeera announced routes to London, India, Pakistan and Bangladesh, as well as the delivery of three new A320 aircraft, planned for later that year.

KIA is undergoing a major expansion with the construction of the new Terminal 2, which began in May 2017. The KD1.3bn ($4.3bn) project is being coordinated by the MPW and the DGCA, together with UK-based designers Foster and Partners, and Turkey’s Limak Construction (see Construction chapter). The 130,000-sq-metre terminal will have a capacity of around 13m passengers per year when it is completed, with the potential to double capacity in the future by constructing an additional, identical building. The terminal will include a basement, ground floor and two upper levels, a multi-storey car park with at least 4500 spaces, 28 terminal gates with eight gates dedicated to the Airbus A380 and a transit hotel with 400 beds. Construction has involved moving the nearby military airfield to make space for a third, 4.5-km runway to the west of the airport. The new runway will be capable of receiving the Airbus A380, and primarily used for cargo and military aircraft. Sustainability is an important part of the ongoing construction process, and the building is on track to become the world’s first LEED gold-certified passenger terminal.

The new terminal and runway are the two pillars of New Kuwait’s Air Transport System Development Programme, with an estimated KD232.5m ($765.8m) spent on these projects in 2018/19. In this period the focus has primarily been on expanding the capacity of the airport, improving services, updating safety and security systems, and utilising modern technologies. In the future, Madinat Al Hareer, or Silk City – the planned new city in the north of the country – is also scheduled to have its own international airport. These developments have, in turn, had positive flow-off effects for other sub-sectors. “As a result of new airport infrastructure, there has been a surge in demand for jet fuel supply by the growing requirements of local and other commercial airlines,” Abdullah Muhammed Al Duaijani, deputy chairman and general manager of Kuwait Aviation Fuelling Company, told OBG.

Ports

In FY 2018/19 KPA recorded its highest net profit since its establishment in 1977, at KD48m ($158.1m), with revenue of KD97m ($319.5m) – largely a result of the revival of shipping activity in Iraq and Iran, which Kuwait was able to benefit from. Figures from the World Bank show that container traffic has steadily increased since 2013. In that year Kuwait’s ports handled 950,000 twenty-foot equivalent units (TEUs), increasing to 1.26m TEUs in 2016 and 1.32m TEUs in 2017. In addition, passenger traffic is on the rise, with Qatar opening a permanent shipping line between Doha’s Port Hamad and Shuwaikh Port in December 2018. The 250-room passenger and cargo ship also connects to Sohar Port in Oman.

Shuwaikh is the largest of KPA’s three ports and is considered the country’s primary commercial port. The 4.4m-sq-metre site is located just west of downtown Kuwait City. The port has 21 berths and is capable of handling vessels with a maximum draught of 9.5 metres at high tide. It also has 170,323 sq metres of warehousing space and 485,718 sq metres of open-air storage. North-west of the port is Shuwaikh Container Terminal, on a 260,000-sq-metre site, which uses three of the port’s main berths. Each of these has two gantries, nine reach stackers and four empty container handlers. The smaller Doha Port is located west of Shuwaikh and can handle vessels of up to 4.3 metres in draught. It has 4100 sq metres of covered warehousing space and a 3250-sq-metre cattle pen. Doha largely handles fishing boat and dhow (traditional sailboat) traffic. The third port, Shuaiba, is located around 45 km south of Kuwait City and has 20 berths. The port has a specialist facility for transporting petroleum, under the management of the Kuwait National Petroleum Company. The facility, which has a depth of 16 metres, has conveyor belts installed at four berths for coke, sulphur and other petroleum products. Four berths are dedicated to container traffic, with seven gantry cranes in operation. Ships with a draught of up to 13 metres can be accommodated at the container terminal, which has around 14,500 sq metres of warehousing.

Under New Kuwait’s Maritime Transport System Development Programme, all three ports have been earmarked for further development. In 2018/19 KD140.3m ($462.1m) was spent on maritime development under this programme. Plans include connecting the ports to an integrated management system; establishing a new export, import and Customs inspection area at Shuaiba; and implementing of the National Centre for Passenger Traffic, Search and Rescue Systems. Sector players remain confident in the ability of the ports segment to attract greater investment. “Shipping is a global industry, where trends have been moving towards increased efficiency through larger ship capacity, technical advances and greater availability of data. This also means that companies are constantly investing to keep pace with safety and environmental requirements as they are updated,” Bader Al Khashti, chairman of Kuwait Oil Tanker Company, told OBG.

Outlook

With continued progress on the construction of the new airport terminal, renewed focus on the development of Mubarak Al Kabeer Port, and road extension and improvement projects under way, subsequent years will see significant expansion in transport and logistics infrastructure. While investment in these large-scale schemes is expected to remain dominated by the public sector, a number of major opportunities for private and foreign investors also lie ahead, and the government is keen to promote a PPP model as it launches the next stage of Kuwait’s development plan in 2020. The sector’s progress, however, will largely depend on regional stability, with Kuwait set to benefit from Iraqi reconstruction and a potential easing of international tensions with Iran. The series of projects to improve connections between Kuwait and its neighbours, such as motorway upgrades, should bring new opportunities. The new terminal at KIA and Mubarak Al Kabeer Port will boost global connectivity and enhance the country’s status as a centre for shipping and logistics. Furthermore, domestic economic growth and the expansion of the e-commerce segment will offer potential for local transport companies to expand.

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The Report: Kuwait 2019

Transport & Logistics chapter from The Report: Kuwait 2019

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